Top economists want JobSeeker boosted by $100+ per week and tied to wages



Wes Mountain/The Conversation, CC BY-ND

Peter Martin, Crawford School of Public Policy, Australian National University

Once about as high as the pension, the JobSeeker (Newstart) unemployment payment has fallen shockingly low compared to living standards.

It’s now only two thirds of the pension, just 40% of the full-time minimum wage and half way below the poverty line.

JobSeeker has fallen relative to other payments because while the pension and wages have climbed faster than prices, JobSeeker (previously called Newstart) has increased only in line with prices since 1991.

In an apparent acknowledgement that JobSeeker had fallen too low, the government roughly doubled it during the coronavirus crisis, introducing a supplement to enable people to “meet the costs of their groceries and other bills”.

But that supplement is being wound down, from A$225 per week to $125 on September 25, and again to $75 on January 1, before expiring on March 31.

After March, the single rate of JobSeeker (including the $4.40 per week energy allowance) will drop back to about $287.25 per week.


JobSeeker vs age pension


Source: Ben Phillips ANU, Services Australia

Ahead of a decision about any permanent increase expected early next year, The Conversation and the Economic Society of Australia asked 45 of Australia’s leading economists where they thought JobSeeker should settle.

Only four think it should revert to $287.25 per week.

All but eight want a substantial increase. More than half (24 out of 45) want an increase of at least $100 per week.



Economic Society of Australia/The Conversation, CC BY-ND

The results suggest the economists would be dissatisfied with a decision to merely increase JobSeeker by $75 per week in line with the supplement that is due to expire at the end of March.

The 45 members of the society’s 57-member panel who responded include Australia’s preeminent experts in the fields of microeconomics, macroeconomics economic modelling, labour markets and public policy.

Among them are former and current government advisers, a former member of the Reserve Bank board and a former member of the Fair Work Commission’s minimum wage panel.




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Many want an increase of about $150 a week to bring JobSeeker close to the age pension and 50% of median income.

Curtin University’s Harry Bloch asked (rhetorically) whether unemployed people had “lower needs than those on the aged pension”.

Labour market specialist Sue Richardson said keeping payments so low that people lost dignity and hope and suffered material deprivation hurt not only the people who were unemployed, but also the thousands of children who grew up in their households.

A scant incentive to shirk

She knew of no evidence that suggested a low rate of JobSeeker increased the likelihood of an unemployed person getting a job.

Jeff Borland said even if JobSeeker was increased by $125 per week, those on it would still earn less than all but 1% of full-time adult workers and would face plenty of remaining financial incentives to get paid work.

In research to be published in The Conversation on Monday he examines a real-life experiment: the temporary near-doubling on JobSeeker between March and September, and finds it played no role in creating unfilled vacancies.




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New finding: boosting JobSeeker wouldn’t keep Australians away from paid work


Emeritus Professor Margaret Nowak said JobSeeker had been driven to the point where it denied unemployed Australians the shelter, food and transport they needed to find work.

Former Liberal party leader John Hewson described the failure to adjust JobSeeker for three decades as “immoral”, and a national disgrace driven by “little more than prejudice”.

Going forward, there was overwhelming agreement among those surveyed that once JobSeeker was restored to an acceptable level, it should be linked to wages (in line with the pension) rather than increase with prices as before.



Economic Society of Australia/The Conversation, CC BY-ND

Two thirds of those surveyed want JobSeeker increase in line with wages, and of those who do not, several want the pension to increase more slowly in order to ensure the two move in sync.

Gigi Foster and Geoffrey Kingston propose a half-way house – increases in both the pension and JobSeeker halfway between increases in the consumer price index and wages.

Wages determine living standards

Others suggest practical measures to make JobSeeker better at getting Australians into jobs. Beth Webster suggests reducing the rate at which JobSeeker cuts out with hours worked to encourage part-time workers to take on more hours.

Tony Makin suggests a relocation allowance to help people take on jobs distant from their current place of residence.




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‘If JobSeeker was cut, the unemployed would be picking fruit’? Why that’s not true


None of the economists surveyed expressed concern about the budgetary cost of restoring the relative position of JobSeeker, estimated by the Parliamentary Budget Office to be $4.8 billion per year for an increase of $95 per week.

Several expressed a desire to put the issue behind them, increasing JobSeeker to a reasonable proportion of the pension or median wage and leaving it there so that, in the words of Saul Eslake, “this issue never arises again”.


Individual responses

The Conversation

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

From here on our recovery will need more than fiscal policy, it’ll need redistribution


Michael Keating, Australian National University

From the 1980s right through to the global financial crisis, the standard response in Australia and elsewhere to too weak or too strong an economy has been monetary policy — the manipulation of interest rates by a central bank, in our case the Reserve Bank.

Rates can be moved quickly, and central banks are seen to be independent and to behave responsibly, while governments are seen as making decisions for political rather than economic reasons.

But since the global financial crisis (in much of the world) and since COVID (in Australia) managing the economy has come to be seen once again as the role of the government through spending and tax decisions — so-called fiscal policy.

One reason is interest rates have fallen so low there’s been little left to cut.

After the 1990s recession, the Reserve Bank cut its cash rate from 17% to 7.5%. After the financial crisis it cut it from 6% to 3.25%. By the time COVID came around the rate was already at a record low of 0.75%

The bank did cut, as much as it could — first to a new record low of 0.5%, then to 0.25% and now to 0.1%, but there’s little more it can do, at least with the cash rate.

Rate cuts have been used up

And there’s little that whatever cuts it could make could do to boost the economy. Their immediate impact would be to push up the prices of houses and other assets and worsen inequality.

So the government has turned to fiscal policy. Since the onset of the pandemic the Commonwealth has provided A$257 billion in direct economic support; about 13% of GDP.

By comparison, in response to the global financial crisis it spent $72 billion; about 6% of GDP.

It will help, but it will do little about the underlying reason why rate cuts have become ineffective, which is an excess of savings over opportunities to invest them.

We’re in a savings glut

As far back as the mid-2000s the then chairman of the US Federal Reserve, Ben Bernanke, was talking about a savings glut: too many savings chasing too few opportunities to invest.

Too many savings chasing too few opportunities.
Ashwin/Shutterstock

For a while the US and other economies remained strong as the downward pressure of excess savings on demand was held at bay by households borrowing ever increasing amounts in order to spend.

That escape valve closed after the global financial crisis, and numerous (mostly American) economists began talking about ongoing slow economic growth, which they described as “secular stagnation”.

There are two suggested explanations. One involves supply. It might be that the ability of the economy to supply more of what we want is slowing.

The other involves demand. It might be that we not demanding enough of the things the economy can produce.

Potential supply might be slowing because modern-day technological progress, principally in the form of information and communications technology, is having less of an impact than previous new technologies such as electricity, the internal combustion engine or the automated production line.




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Australia’s treasury has also suggested the Australian economy might be less dynamic, with lower levels of firm entry and job switching, slower adoption of frontier technologies and processes, and less labour reallocation of resources from low to high productivity firms.

It is these supply-side constraints that have captured the attention of the Australian authorities.

On the other hand, in the US, former Treasury Secretary Lawrence Summers has pointed out that if supply-side constraints were the principal problem, inflation would have been expected to accelerate as capacity to supply fell short of demand, whereas in fact it has decelerated.

Low spending means low investment

What’s more likely is there’s insufficient demand for the goods and services the economy is able to supply.

This would explain why firms are reluctant to invest (and invest in new technology) to make more goods and services, a reluctance that might itself be slowing technological progress and the rate of increase in potential supply so that it better matches the slow increase in demand.

Treasury Secretary Steven Kennedy.
AAP

It would also explain why interest rates have been falling. Businesses don’t need funds to invest on the scale they once would have, however widely available those funds are.

According to Australia’s treasury secretary Steven Kennedy, this savings glut is the reason the neutral interest rate (the real cash rate that is neither expansionary or contractionary) has been falling over the last 40 years.

He attributes these lower rates to “some combination of population ageing, the productivity slowdown and lower preferences for risk among investors”.

Given the international literature, it is surprising he hasn’t also identified changes in the distribution of incomes.

As is well known, higher income families tend to have a higher propensity to save than low income families.

Our incomes are becoming more skewed

This means changes in the distribution of incomes can drive changes in demand.

In Australia’s case — and Australia is far from the worst among the advanced economies — over each of the decades in the 1990s and 2000s male real earnings grew by about 30% at the top of the distribution, while at the bottom of the distribution they grew not at all in the 1990s only by 10% in the 2000s.

For females, real earnings grew by about 15% for women on below median earnings in each of the decades, while at the top of the distribution, female real earnings grew by 25% in the 1990s and 35% in the 2000s.




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Although the available data doesn’t show any further increase in income inequality during the 2010s, it shows the previous increases haven’t been reversed.

In addition, the unequal distribution of wealth has worsened dramatically.

For fiscal policy to be effective from here on it will need to be directed toward Australians with high propensity to spend and away from Australians with a high propensity to save. This means it will have to adopt as a goal a more egalitarian distribution of incomes, and perhaps wealth.

We’ll need to boost low incomes

So far, the government response to the COVID crisis has been good in this respect.

JobKeeper and the Coronavirus supplement for job seekers have both been of most benefit to lower income Australians.

Looking to the future, a sustained recovery in demand is unlikely to come from extra spending on infrastructure. These projects typically employ few people and have either no business cases or business cases of dubious value.

Nor will it come from general fiscal support, including income tax cuts for high earners with high propensities to save.

Long-term, it will have to involve boosting the earning potential of low earners.

Education and services are the places to start

This will mean, as a first priority, boosting spending on education and training in order to improve skills and earning power and better suit skills to needs.

The second priority has to be improving the quality of and access to government services.

Services such as aged care have suffered from under-funding, denying employment opportunities to low earners and denying others support.




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In addition, cutting the cost of childcare and a revamping its means tests would encourage many women to increase their hours of work and thus their family income, as well as creating more jobs for carers.

One of the great benefits of fiscal policy is that it can be targeted in this way, refashioned to improve income distribution and consumer demand.

It is another reason for preferring it over monetary policy for some time to come.The Conversation

Michael Keating, Visiting Fellow, College of Business & Economics, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Data from 45 countries show containing COVID vs saving the economy is a false dichotomy



Shutterstock

Michael Smithson, Australian National University

There is no doubt the COVID-19 crisis has incurred widespread economic costs. There is understandable concern that stronger measures against the virus, from social distancing to full lockdowns, worsen its impact on economies.

As a result, there has been a tendency to consider the problem as a trade-off between health and economic costs.

This view, for example, has largely defined the approach of the US federal government. “I think we’ve learned that if you shut down the economy, you’re going to create more damage,” said US Treasury Secretary Steve Mnuchin in June, as the Trump administration resisted calls to decisively combat the nation’s second COVID wave.

But the notion of a trade-off is not supported by data from countries around the world. If anything, the opposite may be true.

Data from 45 nations

Let’s examine available data for 45 nations from the Organisation for Economic Co-operation and Development, using COVID-19 data and economic indicators.

The COVID-19 statistics we’ll focus on are deaths per million of population. No single indicator is perfect, and these rates don’t always reflect contextual factors that apply to specific countries, but this indicator allows us to draw a reasonably accurate global picture.

The economic indicators we’ll examine are among those most widely used for overall evaluations of national economic performance. Gross domestic product (GDP) per capita is an index of national wealth. Exports and imports measure a country’s international economic activity. Private consumption expenditure is an indicator of how an economy is travelling.

Effects on GDP per capita

Our first chart plots nations’ deaths per million from COVID-19 against the percentage change in per capita GDP during the second quarter of 2020.

The size of each data point shows the scale of deaths per million as of June 30, using a logarithmic, or “log”, scale – a way to display a very wide range of values in compact graphical form.


Log(deaths per million) by percentage change in Q2 2020 GDP per capita.


If suppressing the virus, thereby leading to fewer deaths per million, resulted in worse national economic downturns, then the “slope” in figure 1 would be positive. But the opposite is true, with the overall correlation being -0.412.

The two outliers are China, in the upper-left corner, with a positive change in GDP per capita, and India at the bottom. China imposed successful hard lockdowns and containment procedures that meant economic effects were limited. India imposed an early hard lockdown but its measures since have been far less effective. Removing both from our data leaves a correlation of -0.464.

Exports and imports

Our second chart shows the relationship between deaths per million and percentage change in exports.

If there was a clear trade-off between containing the virus and enabling international trade, we would see a positive relationship between the changes in exports and death-rates. Instead, there appears to be no relationship.


Log(deaths per million) by percentage change in Q2 2020 exports.


Our third chart shows the relationship between deaths per million and percentage change in imports. As with exports, a trade-off would show in a positive relationship. But there is no evidence of such a relationship here either.


Log(deaths per million) by percentage change in Q2 2020 imports.


Consumer spending

Our fourth chart shows the relationship between deaths per million and percentage change in private consumption expenditure. This complements the picture we get from imports and exports, by tracking consumer spending as an indicator of internal economic activity.


Log(deaths per million) by percentage change in Q2 2020 private consumption.


Again, no positive relationship. Instead, the overall negative relationship suggests those countries that succeeded (at least temporarily) in suppressing the virus were better off economically than those countries adopting a more laissez-faire approach.

National wealth

As a postscript to this brief investigation, let’s take a quick look at whether greater national wealth seems to have helped countries deal with the virus.

Our fifth and final chart plots cases per million (not deaths per million) against national GDP per capita.


Log(GDP per capita) by log(cases per million).


If wealthier countries were doing better at suppressing transmission, the relationship should be negative. Instead, the clusters by region suggest it’s a combination of culture and politics driving the effectiveness of nations’ responses (or lack thereof).

In fact, if we examine the largest cluster, of European countries (the green dots), the relationship between GDP per capita and case rates is positive (0.379) – the opposite of what we would expect.




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It’s not a zero-sum game

The standard economic indicators reviewed here show, overall, countries that have contained the virus also tend to have had less severe economic impacts than those that haven’t.

No one should be misled into believing there is zero-sum choice between saving lives and saving the economy. That is a false dichotomy.

If there is anything to be learned regarding how to deal with future pandemics, it is that rapidly containing the pandemic may well lessen its economic impact.The Conversation

Michael Smithson, Professor, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Daniel Andrews plans pilot for casual workers’ sick pay but Morrison government critical



Lukas Coch/AAP

Michelle Grattan, University of Canberra

The Victorian government plans a pilot scheme for up to five days sick and carer’s pay, at the national minimum wage, for casuals or insecure workers in priority industries.

Even though the initiative is at a very early stage, with $5 million in Tuesday’s state budget for consultation on the pilot’s design, the federal government immediately attacked the move.

Industrial Relations Minister Christian Porter said it “raises a number of major issues”.

Once underway, the pilot would run two years in selected sectors with high casualisation. It could include cleaners, hospitality staff, security guards, supermarket workers and aged care workers.

“The pilot will roll out in two phases over two years with the occupations eligible for each phase to be finalised after a consultation process that will include workers, industry and unions,” a statement from Premier Daniel Andrews’ office said.

Casual and insecure workers in eligible sectors would be invited to pre-register for the scheme.

While the pilot would be government-funded, any future full scheme would involve a levy on business.

Andrews said: “When people have nothing to fall back on, they make a choice between the safety of their workmates and feeding their family.

“This isn’t going to solve the problem of insecure work overnight but someone has to put their hand up and say we’re going to take this out of the too hard basket and do something about it.”

But Porter said a fully-running scheme would put “a massive tax on Victorian businesses”, which would be paying both the extra loading casuals receive and the levy.

“After Victorian businesses have been through their hardest year in the last century, why on earth would you be starting a policy that promises to finish with another big tax on business at precisely the time they can least afford any more economic hits?”

Porter said it would be better to strengthen the ability of workers to choose to move from casual to permanent full or part-time employment if they wished.

He said this was what had been discussed in the recent federally-run industrial relations working group process involving government and employee and employer representatives.

“It must surely be a better approach to let people have greater choice between casual and permanent employment than forcing businesses to pay a tax so that someone can be both a casual employee and get more wages as compensation for not getting sick leave – but then also tax the business to pay for getting sick leave as well.”

Porter claimed the Victorian approach would be “a business and employment-killing” one.

In the pandemic the federal government has made available a special payment for workers who test COVID-positive or are forced to isolate and don’t have access to paid leave. The Victorian government has provided a payment for those waiting for the result of a COVID test.

The Morrison government will introduce an omnibus industrial relations reform bill before the end of the parliamentary ar, following its consultation process.

A central objective will be to streamline enterprise bargaining. Scott Morrison told the Business Council of Australia last week: “Agreement making is becoming bogged down in detailed, overly prescriptive procedural requirements that make the process just too difficult to undertake”.

He said various issues needed addressing. “The test for approval of agreements should focus on substance rather than technicalities. Agreements should be assessed on actual foreseeable circumstances, not far fetched hypotheticals.” Assessments by the Fair Work Commission should happen within set time frames where there was agreement from the parties.

Morrison said key protections such as the better off overall test would continue but “our goal is to ensure it will be applied in a practical and sensible way so that the approval process does not discourage bargaining, which is what is happening now”.The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Retirement incomes review finds problems more super won’t solve



Robyn Mackenzie/Shutterstock

Peter Martin, Crawford School of Public Policy, Australian National University

It would be a waste if the Friday’s mammoth Retirement Incomes Review was remembered only for its finding that increases in employers compulsory superannuation contributions come at the expense of wages.

That has long been assumed, and is what was intended when compulsory super was set up.

Compulsory super contributions are set to increase in five annual steps of 0.5% of salary between 2021 and 2025.

These are much bigger increases than the earlier two of 0.25% in 2012 and 2013.

And the wage rises they will be taken from will be much lower. The latest figures released on Wednesday point to shockingly low annual wage growth of 1.4%.

Should each of the scheduled increases in employers compulsory super knock 0.4 points off wage growth (which is what the review expects) annual wage growth would sink from 1.4% to 1%.




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Private sector wage would sink from 1.2% to 0.8%, in the absence of something to push it back up.

Because inflation will almost certainly be higher than 1%, it means the buying power of wages would go backwards, all for the sake of a better life in retirement.

The review presents the finding starkly. Lifting compulsory super contributions from 9.5% of salary to 12% will cut working-life incomes by about 2%.

And for what? It’s a question the review spends a lot of time examining.

Most retirees have enough

The review dispenses with the argument that the goal of a retirement income system should be “aspirational”, or to provide people with higher income in retirement than they had in their working lives.

It finds that for retirees presently aged 65-74 the replacement rates for middle to higher income earners are generally adequate.


Source: Australian Tax Office

Many lower-income earners get more per year in retirement than they got while working.

If the increases in compulsory super proceed as planned, this will extend to the bottom 60% of the income distribution.

They’ll enjoy a higher standard of living in retirement than while working (and will enjoy a lower standard of living while working than they would have).

Most retirees die with most of what they had when they retired, leaving it as a bequest. They are reluctant to “eat into” their super and other savings because of concerns about possible future health and aged care costs, and concerns about outliving savings.

The review quite reasonably sees this as a betrayal of the purpose of government-supported super, saying

superannuation savings are supported by tax concessions for the purpose of retirement income and not purely for wealth accumulation

It’s the pension that matters

The pension does what super cannot. It provides a buffer for retirees whose income and savings fall due to market volatility, and for those who outlive their savings. 71% of people of age pension age get it or a similar payment. More than 60% of them get the full pension.

If there’s one key message of the review, it is this: it is the pension rather than super that matters for maintaining living standards in retirement, which is what the review was asked to consider.

It is also cost-effective compared to the growing budgetary cost of the super tax concessions.




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Why we should worry less about retirement – and leave super at 9.5%


The age pension costs 2.5% of GDP and is set to fall to 2.3% of GDP over the next 40 years as the super system matures and tighter means tests bite.

Treasury modelling prepared for the review shows that if more money is directed into super and away from wages as scheduled, the annual budgetary cost of the super tax concessions will exceed the cost of the pension by 2050.

There’s a real retirement income problem

A substantial proportion of Australians, about 30%, are financially worse off in retirement than while working, and they are people neither super nor the pension can help.

Mostly they are older Australians who have lost their jobs and cannot get new ones before they before eligible for the age pension or become old enough to get access to their super. Often they’ve left the workforce due to ill health or to care for others and are forced to rely on JobSeeker, which is well below the poverty line.




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It’s much worse if they rent privately. About one quarter of retirees who rent privately are in financial stress, so much so that the review finds even a 40%
increase in the maximum Commonwealth Rent Assistance payment wouldn’t be enough to get them a decent standard of living in retirement.

No recommendations, but findings aplenty

The review was not asked to produce recommendations. Instead, while noting that much of the system works well, it has pointed to things that need urgent attention.

It finds that pouring a greater proportion of each pay packet into the hands of super funds is not the sort of attention needed, and in the present unusual circumstances could cost jobs as employers who can’t take the extra cost out of wages take it out of headcount.

The government will make a decision about whether to proceed with the legislated increase in compulsory super in its May budget, just before the first of the five increases due in July.The Conversation

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

We’ve just signed the world’s biggest trade deal, but what exactly is the RCEP?


Patricia Ranald, University of Sydney

The giant Regional Comprehensive Economic Partnership between Australia, China, Japan, South Korea, New Zealand and the ten members of ASEAN (Brunei, Cambodia, Indonesia, Laos, Myanmar, The Philippines, Singapore, Thailand and Vietnam) was signed online on Sunday, November 15.

India left negotiations in November 2019, but even so, the deal will cover one third of the world’s population and economy.

Australia and the other governments refused to release the text until after signing, continuing Australia’s regrettable secrecy about deals it is about to sign.

India left the RCEP because of concerns about its potentially negative impact on local industry development.

Since Australia already has free trade agreements with all of the remaining members, India’s absence significantly diminishes what might have been in it for Australian exporters.

What’s left are some agreements on common standards and the claimed ability for Australia to talk to China more than it can through its own one-on-one trade agreement.




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The text was completed before the pandemic and has not been revised since.

As it happened, Australia took actions during the pandemic that were technically contrary to the rules embodied in the RCEP in order to boost local manufacturing capacity for essential products.

We’ve already bent the rules

The prime minister has since announced longer term local industry support and the trade minister has said that the challenge for the future is about getting “the balance right”.

But the rules signed up to on Sunday will integrate Australia further into regional production chains and commit Australia to avoid assistance for local industries of the kind that will arguably be needed to rebuild and strengthen the economy.

Other rules signed up to on Sunday open essential services such as health, education, water, energy, telecommunications, finance and digital trade to foreign investors and restrict the ability of governments to regulate them in the public interest.

Sunday’s virtual signing ceremony.
Lukas Coch/AAP

It remains to be seen whether these rules will give governments the flexibility they will need to get “the balance right”

Oddly for an agreement dealing with standards, there’s nothing in it about forced labour or child labour, and no mention of climate change.

Its members include countries like China and Myanmar in which there is mounting evidence of labour rights and human rights abuses.

But there are also welcome omissions.

No further rights for foreign investors

The final text confers no special rights on foreign corporations to sue governments through what are known as Investor-State Dispute Settlement clauses common in other agreements, although there is an opportunity for the members to revisit the idea two years after ratification

Nor are there increases in patent monopolies for medicines of the kind included in the original Trans-Pacific Partnership. These were suspended in the revised Comprehensive and Progressive Agreement for Trans-Pacific Partnership now ratified by Australia and six other countries.




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The RCEP will be reviewed by a parliamentary committee which, as is usual in these agreements, will be unable to change the text.

The Coalition has a majority on that committee.

Broader manoeuvring

Some commentators see the RCEP through the lens of US-China competition..

Looked at this way, the US has been weakened by the Trump administration’s decision to pull out of the original Trans Pacific Partnership.

It is argued that the RCEP is China’s creation, and the incoming Biden administration will need to counter it by re-joining the revised Trans-Pacific Partnership, which excludes China.

But this is a US-centric a view that downplays the leading role of the ASEAN countries in creating the RCEP.




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A Biden administration is unlikely to re-join the Trans Pacific Partnership any time soon. Parts of the Democratic party remain strongly opposed to it.

The US will rejoin genuinely multilateral organisations such as the World Health Organisation and the Paris Climate Agreement.

But Biden’s trade policy is likely to focus on domestic priorities such as the pandemic and climate change, about which the RCEP says nothing.The Conversation

Patricia Ranald, Honorary research fellow, University of Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

JobSeeker supplement extended to end-March, at lower rate


Michelle Grattan, University of Canberra

The federal government will extend the JobSeeker Coronavirus supplement for an extra three months, to the end of March, at a cost of $3.2 billion.

The supplement, which is currently $250 a fortnight, will be at a reduced rate of $150 a fortnight during that period.

Prime Minister Scott Morrison said the financial “lifeline” that had been extended during the COVID crisis could not be allowed now to hold Australia back, as the country moved into the next phases of recovery.

The extension is a recognition that longer-term assistance is needed for the high number of people who will be unemployed early next year and that extra stimulus is needed to help lift the economy out of recession as soon as possible.

But the government is still avoiding the question of what change it will make to the base JobSeeker rate, which was widely recognised as inadequate long before the pandemic.

At the same time, the government is pushing a tougher approach to trying to ensure people take what jobs are available.

Morrison told a news conference mutual obligation requirements were being enforced. There were nearly 260,000 suspensions between September 28 and October 31, and from August 4 to October 31, 242 payments were cancelled.

“So the mutual obligation requirements are there and we are serious about them. But we are also serious about the support we need to provide to Australians,” Morrison said.

We are seeing confidence return, whether it’s on the NAB measures just released today, the ANZ measures showing confidence getting above where it was pre-pandemic or the Westpac figures that were released for last month,” Morrison said.

“Australia is safely reopening and it needs to remain safely open. Jobs are returning. Job advertisements have doubled since May on the most recent figures in October, and we know that employers are looking for people to come back to work and we need to ensure that we have the right settings in place to support that.”

The shadow minister for families, Linda Burney, said the government would “cut unemployment support by $100 per fortnight after Christmas.

“With the Morrison Government expecting 1.8 million Australians to be on unemployment support by the end of the year, now is not the time to cut unemployment support. There are simply not enough jobs for every Australian who needs one.”The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article is republished from The Conversation under a Creative Commons license. Read the original article.

$34bn and counting – beware cost overruns in an era of megaprojects


Greg Moran, Grattan Institute

A Grattan Institute report released today finds Australian governments spent A$34 billion, or 21%, more on transport projects completed since 2001 than they first told taxpayers they would. And as we enter the era of megaprojects in Australia, costs continue to blow out.

Transport projects worth A$5 billion or more in today’s money were almost unheard of ten years ago. Today, as the chart below shows, megaprojects make up the bulk of the work under way across the country.


Author provided

These megaprojects include WestConnex in Sydney, West Gate Tunnel in Melbourne and Cross River Rail in Brisbane. And this is to say nothing of some enormous projects being planned, such as Melbourne’s Suburban Rail Loop.

We are also hearing calls to add to this bulging pipeline. In June, the transport and infrastructure ministers of all states and territories said they were “clearing the way for an infrastructure-led recovery” from the COVID-19 recession.




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We may live to regret open-slather construction stimulus


Cost overrun risks rise with project size

The Grattan report, The rise of megaprojects: counting the costs, sounds a warning about the risks of this approach. The report uses the Deloitte Access Economics Investment Monitor to look at the final cost of all public road and rail projects worth A$20 million or more and completed since 2001. As the chart below shows, we found bigger projects overran their initial cost estimates more often and by more.


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Almost half of the projects with an initial price tag of more than A$1 billion in today’s money had a cost overrun. These projects overran their initial costs by 30% on average. The extra amount spent on some megaprojects was the size of a megaproject itself.

Cost announcements before governments were prepared to commit formally to a project were particularly risky. Only one-third of projects had costs announced prematurely, but these accounted for more than three-quarters of the A$34 billion overrun.




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When early costings of infrastructure turn out to be too low, it distorts investment planning in three ways:

  1. underestimating the costs of transport infrastructure can lead to over-investing in it relative to other spending priorities

  2. if governments misunderstand the uncertainty in a project’s cost at the time they commit to it, their decision to invest in that project was made on an incorrect basis

  3. because unrealistic cost estimates are more prevalent for larger projects, governments are more likely to over-invest in larger projects.

There’s also a fourth and no less important problem: when unrealistically low cost estimates are announced, the public is misled.

Despite the experience of the past 20 years, the costs of big projects continue to be underestimated. The chart below shows A$24 billion more than first expected will be spent on just six mega megaprojects (that is, projects with an initial cost estimate of A$5 billion or more) now under construction. Overruns on other megaprojects have been reported too.


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What needs to be done?

With megaproject costs continuing to blow out, governments should take immediate steps to manage better the portfolio of work under way — particularly if they are looking to add to it in the name of economic stimulus.

Each state’s auditor-general should conduct a stocktake of current projects. This would give the public and the government a clear picture of the situation.

Ministers should begin reporting to parliament on a continuous disclosure basis. Any material changes in expected costs, benefits or completion dates of very large projects should be disclosed.

Steps should be taken to put decisions on the incoming batch of projects on a sounder basis, too. When announcing a cost, ministers and government agencies should disclose how advanced the estimate is. If the proposal is at an early stage, they should quote a range of estimates.

Governments should also require their infrastructure advisory bodies to at least assess — if not approve — large proposals before funding is committed.

Looking further ahead, action is needed to stop the pattern of spending billions more than expected on megaprojects. State departments of transport and infrastructure should devote more resources to identifying modest-sized transport infrastructure proposals.




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And governments need to start learning from the past. Detailed project data, particularly on expected and actual costs, should be centrally collated in each state.

Post-completion reviews should be mandatory on all large projects. These reviews should be published.

If there is no change in the way infrastructure is conceived and delivered in Australia, then the era of the megaproject will indeed mean megaproblems.The Conversation

Greg Moran, Senior Associate, Grattan Institute

This article is republished from The Conversation under a Creative Commons license. Read the original article.